There a clear signs that traders in the City are expecting interest rates to rise by 0.5% by December this year. The Bank of England tends to make a series of small interest rate changes rather than one big change, so watch out for the first 0.25% rise around August.

Mortgage rates are already beginning to react with the rates for two and three year fixed rate mortgages rising. The rates on loans and credit cards are generally variable, so these aren’t likely to rise until the Bank of England moves.

It’s all because inflation is coming under pressure. The target for inflation is 2% per annum but with energy prices high, and likely to soar even further, we are beginning to see the knock on effect on prices of goods and services across the economy. And despite fuel bills siphoning money from the man in the street, new car registrations are up 7% in the year to March, industrial orders rose more than 13% and business confidence improved again last month (April). Even America the economy is experiencing surprising levels of activity.

All this is good news for Britain’s economy. The annual rate of exports has risen almost 20% virtually matched by imports. The major quarterly survey of the economy suggests that growth will remain strong.

Economic figures are all well and good, but for the man and woman in the street, it’s the housing market that is perhaps the key barometer. Here the current news is good for homeowners, but perhaps less good for those aspiring to get on the housing ladder.

Currently, the housing market is buoyant. Prices rose another 2% in April according to the Halifax, meaning that they are now some 10% higher than over the same time last year.

The problem is that sentiment in the housing market is very fickle. As soon as we get the first interest rate rise, watch the buyers dive for cover. A rise in August followed by another in early autumn, will probably cause the housing market to stall. As we all know, forecasts eighteen months ago that the housing market was in for a crash proved false – and we’re still not expecting prices to fall heavily. But it’s the property hot spots that will bear the brunt of any slow down. They’ll be the first to experience a slow down and a dose of realism in respect of prices.

At the moment nationally, the average house is being sold at around 95% of its asking price. When the interest rate rises emerge, we expect to see this percentage fall to just under 90% and asking prices will trim as a result.

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